Can a person who has been contributing toward Employee Provident Fund (EPF) can also open a Provident Fund Account (PPF)? If yes then is it advisable to invest in EPF and PPF both?
Contribution to an Employee Provident Fund account can only be made by a person who is working as an employee of an organisation that has EPF scheme in place whereas a Provident Fund Account (PPF) can be opened by any Individual whether salaried or self-employed who is resident of India. A PPF account can even be opened in the name of minor and housewives. There is no restriction on an employee having EPF account also having a PPF account.
Accumulation of good corpus for your retirement is very important because in the days of nuclear family even the children move out of house for working somewhere else leaving the parents are left to fend for themselves. So investing in both, in my opinion, is absolutely an excellent strategy as both the scheme help you accumulate good corpus for long-term financial goals specially for your retirement. Since interest on both these schemes is tax free, this will help you accumulate good funds without having to pay any tax on the income earned on these investments year after year.
The tax laws have the restriction of Rs. 2.50 lakhs of annual contribution only upto which interest in your EPF account will be tax free and any interest earned on contribution beyond 2.50 lakhs every year is fully taxable in your hand so PPF offers one more avenue to invest an addition amount of Rs. 1.50 lakhs every year to earn tax free interest. Moreover both the schemes give better returns as compared to other risk free products available in the market. One word of caution. You should put your money in both these schemes keeping long term horizon in mind as you can not withdraw your investments in these products as easily as is the case with other debt products like debt schemes of mutual funds and bank fixed deposits.
Balwant Jain is a tax and investment expert and can be reached on jainabalwant@ gmail.com and @jainbalwant on Twitter